Venezuela: If you thought it couldn’t get worse
By admin July 22, 2016

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(AFP Photo/Federico Parra)

Once the richest country in South America with its unrivaled amount of natural resources especially oil reserves, Venezuela is suffering from a historic economic crisis. There are many speculations from different media sources, but what is common between all of them is that the main cause of Venezuela’s economic disaster is extremely high dependency on oil export. According to the OPEC Annual Statistical Bulletin in 2016, Venezuela’s oil revenues account for about 95 percent of export earnings and the oil and gas sector is around 25 percent of gross domestic product.

Venezuela is one of the founding countries of Organization of the Petroleum Exporting Countries (OPEC) and once was the fifth largest oil producer in the world. According to CNN Money, Venezuela is ranking at tenth among the world’s largest oil producers. However, because Venezuela’s export is extremely dependent on oil sales, the country’s whole economy is too elastic on the world’s oil price change. For instance, since 2008 when the price of oil reached the highest at around USD 150 per barrel and plummeted to USD 30 per barrel, the GDP growth in 2009 and 2010 went negative. And as the price of oil drops from 96 to 49 between 2014 and 2015, Venezuela is experiencing a serious economic crisis with negative growth rate and sky-rocketing inflation which is expected to reach 720% by 2016 and for 2017, by 1640%, according to IMF.

But the changes in oil price can’t be the sole reason for the economic collapse. An article from the Washington Post explicitly criticizes the reason for the suffering as “bad luck and worse policies”. In this article, it states that during the Chavez’s regime, the Venezuelan government had spent too much on subsides for cheap gas and free housing without having enough budget in its pocket. And he placed those loyal staffs to the important positions at the government-run oil company so that the profits didn’t circulate well enough to reinvest for the improvements. Lastly, the infrastructure and technology were left behind that the oil companies in Venezuela were producing oil in a very inefficient manner, and yet no one took a good concern on this matter. Furthermore, as Justine Fox from Bloomberg pointed out, Venezuela was running out of money even when the oil price was more than $100.

Still there seems to be no exact solution for such crisis. Poor decisions, lack of professional advisement and moral hazard of the regimes will likely transfer the country fiscal debt, and societal discontent, to the next generation.

For more information:

World’s top oil producers

Venezuela facts and figures

Venezuela’s oil dependency

Venezuela is on the brink of a complete economic collapse

How Hugo Chavez Trashed Latin America’s Richest Economy

Venezuela’s Inflation Is Set to Top 1,600% Next Year

Thanks for sharing !

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